Thousands face pension cut after £100m overpaid

Up to 100,000 retired health service staff, civil servants and armed forces personnel face cuts to their pensions after being mistakenly overpaid for years.

The Government will today make an emergency statement on an embarrassing administrative blunder dating back to the 1970s which is thought to have cost the taxpayer £100m. The affected people – about five per cent of people on a public sector pension – will not have to pay any cash back and losses will be recouped out of Whitehall budgets. But they could have their incomes trimmed from next year as their pension entitlements are recalculated.

The mistake was disclosed in the Commons by Vince Cable, the Liberal Democrat treasury spokesman. Mr Cable said he was alerted to the problem 10 days ago after a journalist contacted him about a company called Xafinity Paymaster. Mr Cable said he had spoken to Sir Gus O'Donnell, the head of the civil service, who confirmed the mistake.

He told MPs: "[The Xafinity Paymaster spokeswoman] understood that this company had been paying out excessive public pensions to hundreds of thousands of public sector pensioners and that ... the company was about to start retrieving the money from the pensioners. [Mr O'Donnell] asked me not to publicise it for several days in order to give the Government an opportunity to inform the pensioners of their difficulties."

Mr Cable said some of the overpayments went back decades and were "potentially enormous".

Alistair Darling, the Chancellor, said no one would have to repay any money, but, he added: "It will be necessary to adjust what's paid for the future. It does need to be put right from next year."